8 Best Undervalued Stocks For 2024 (2024)

Share to Facebook
Share to Twitter
Share to Linkedin

The stock market is not a perfect system. Investor emotion can easily drive a stock's price higher or lower than it should be. Value investors play on that dynamic by seeking out assets that are underpriced—with the goal of seeing gains when those stocks recalibrate later.

Read on to learn about undervalued stocks and the benefits of investing in them. You'll also meet eight stocks that could be candidates for your own value portfolio in 2024.

Understanding Undervalued Stocks

Undervalued stocks are company shares that are trading for less than their intrinsic value. The advantage of investing in undervalued stocks is that these securities often have an attractive risk/reward profile.

If the company's fundamentals are solid, the risk is moderate—since cheap stocks with good fundamentals are less likely to experience dramatic and lingering price drops. The reward comes in when the investment community realizes the stock's true value and the stock rises accordingly.

Why Stocks Can Be Undervalued

There are several reasons stocks can be undervalued. Often, the stock simply isn't very exciting. Investors can be easily drawn to companies that generate headlines or produce jaw-dropping growth. That leaves less money and attention for stocks that grow slowly and reliably.

In other cases, the undervalued stock is under pressure from temporarily negative conditions. It's not unusual for investors to overreact in the face of bad news, prompting an excessive dip in the stock price.

Whatever the reason for the conservative valuation, it equates to a discount on the stock. And the value investor sees that as an opportunity. Why? Because appreciation gains are derived from your cost basis relative to the stock's market value. In that equation, the cost basis is the factor you can control. Buying in at a temporarily low stock price better positions you for gains.

The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download one of Forbes' most popular and widely anticipated reports, 12 Best Stocks To Buy for 2024.

Methodology Used

The top undervalued stocks included below have enduring competitive advantages and conservative PE ratios below 20. They're also stocks analysts view positively.

Competitive advantage, also known as economic moat, is an important characteristic for value stocks. Without it, a company will eventually be displaced by competitors who can work faster, cheaper and better. With an enduring advantage, a business is more predictable and stable. As a result, the leadership team can make better capital allocation decisions to meet growth targets and deliver shareholder returns.

Things like intellectual property (IP), the network effect and scale can create that protective moat for a business:

IP: Pharma companies often have patents on their drugs to keep competitors at bay.
The network effect: This is the positive business momentum that builds as more people use a product or service. Social media platforms benefit from the network effect. People use the platform, add content and refer their friends, which drives more users, more content and more referrals.
Scale: Scale creates economic efficiencies and brand recognition. That's a tough combination to displace. Amazon AMZN (AMZN) is an example of a company that is big enough to outspend and outlast nearly any competitor attack.

The 8 Best Undervalued Stocks For 2024

The table below includes eight great stocks that show signs of being undervalued at the start of 2024. They're listed from largest to smallest in terms of market value.

1. Berkshire Hathaway BRK.B

Stock price: $363.62
Analysts' price target: $411
Last 12 months' (LTM) normalized, diluted EPS: $35.10
Dividend yield: NA
P/E ratio: 10.4

Berkshire Hathaway Overview

Berkshire Hathaway is a conglomerate that holds companies in the insurance, rail transportation and utilities industries, among others. The company owns Geico, BNSF, Berkshire Hathaway Energy Company, See's Candies, Pilot Travel Centers and more.

Why BRK-B Is A Top Pick

Legendary value investor Warren Buffett is Berkshire's CEO and chairman. Under Buffett's watch, Berkshire Hathaway favors undervalued stocks. Key tenants of Buffett's investing style are buying low, investing in companies with moat and holding assets indefinitely unless fundamentals deteriorate.

Berkshire is an interesting investment because it provides exposure to a diversified portfolio of solid companies. Also, the Berkshire balance sheet is run very conservatively; the company holds healthy cash balances to protect against downturns and provide capital for further investment opportunities.

A risk to consider here is Berkshire's future after Buffett departs. He's 93 years old. Buffett's right-hand-man Charlie Munger passed away in 2023 at age 99.

2. Taiwan Semiconductor (TSM)

Stock price: $100.39
Analysts' price target: $111.25
LTM normalized, diluted EPS: $167.79
Dividend yield: 1.8%
P/E ratio: 18.7

Taiwan Semiconductor Overview

Taiwan Semiconductor is a semiconductor foundry. The company produces chips under contract for clients like Apple AAPL , Nvidia (NVDA), AMD (AMD) and Qualcomm QCOM .

Why TSM Is A Top Pick

TSM is the world's most dominant chipmaker. The company owns an estimated 60% of the global semiconductor market. TSM also has long-standing relationships with some of the world's most successful tech companies.

Admittedly, TSM's valuation metrics are less conservative than other options on this list. It gets the nod anyway due to its seemingly unshakable position in a market that's poised to grow. The demand for better, faster chips will rise as the world becomes more digitized and AI-driven.

Analysts expect TSM to deliver revenue growth of 20% in 2024.

3. Tencent Holdings (TCEHY)

Stock price: $36.93
Analysts' price target: $212.50
LTM normalized, diluted EPS: $11.04
Dividend yield: 0.8%
P/E ratio: 13.3

Tencent Overview

Tencent, based in China, is a holding company that owns the popular social media and instant message platform WeChat plus related social media entertainment channels and online games. Tencent also provides online advertising, financial technology and business services.

Why TCEHY Is A Top Pick

Strong growth combined with a positive outlook and conservative valuation make Tencent an attractive option right now.

Monthly active users on WeChat totals 1.3 billion according to Tencent's third quarter, 2023 earnings release. Those users provide audiences for Tencent's advertising sales, which grew 20% in the recent quarter. The company also grew its net profit margin, driving a profit increase of 37% over the prior-year quarter.

4. Alibaba (BABA)

Stock price: $70.14
Analysts' price target: $124.80
LTM normalized, diluted EPS: $52.31
Dividend yield: NA
P/E ratio: 9.9

Alibaba Overview

Alibaba is another Chinese holding company that specializes in e-commerce and technology. The company's businesses provide online retail in China and around the world, digital entertainment services plus enterprise technology infrastructure.

Why BABA Is A Top Pick

BABA's size and active user base of more than 1 billion makes it a formidable competitor in online retail. The company's core business is connecting buyers and sellers on Taobao, Tmall and other websites. Alibaba also operates the mobile payment app Alipay and sells advertising to merchants who want to appear more prominently on the company's marketplaces.

BABA stock has trended down over the last year as the Chinese economy has struggled to recover from the pandemic. There are signs of a turnaround, however. In the September 2023 quarter, Alibaba grew revenues 9% and operating income 34%. Additionally, China recently reported 5.2% economic growth in 2023.

At its current price, Alibaba has tons of upside as economic and business conditions improve.

5. Wells Fargo WFC

Stock price: $46.59
Analysts' price target: $51.15
LTM normalized, diluted EPS: $4.58
Dividend yield: 2.7%
P/E ratio: 9.8

Wells Fargo Overview

Wells Fargo provides consumer and commercial banking services plus investment banking and wealth management services in the U.S. and around the world.

Why WFC Is A Top Pick

Wells Fargo has been working to recover from regulatory penalties for sales-practice abuses. The company's primary limitation is an asset cap imposed by the Federal Reserve. That cap stifles WFC's ability to expand its loan portfolio. That's the bad news.

The good news is that WFC has a big retail client base that keeps deposit costs low relative to peers. Once WFC can resolve its regulatory issues and lower its compliance spending, the company can leverage its efficient cost structure to outpace peers. This sets up a buying opportunity for the patient investor who can wait out WFC's current troubles.

6. British American Tobacco PLC (BTI)

Stock price: $29.87
Analysts' price target: $34.33
LTM normalized, diluted EPS: $4.02
Dividend yield: 9.5%
P/E ratio: 6.5

British American Tobacco Overview

British American Tobacco makes and sells tobacco and vaping products to customers around the world. Brand names include Pall Mall, Camel, Lucky Strike and Newport.

Why BTI Is A Top Pick

Tobacco stocks generally have customer loyalty on their side. They tend to produce consistent cash flows as a result. BTI in particular offers an impressive dividend combined with steady growth and a diversified product portfolio.

BTI's cash returns above 9% along with its sub-7 PE ratio could justify a buy for yield-hungry dividend investors. The business also grew its EPS 5.3% in the first half of 2023, driven by strong performance in new vaping and oral tobacco products.

7. JD.com (JD)

Stock price: $23.86
Analysts' price target: $44.57
LTM normalized, diluted EPS: $18.85
Dividend yield: 2.5%
P/E ratio: 11.6

JD.com Overview

JD.com is a massive online retailer based in China that sells everything from fresh food to home appliances. JD.com is 20% owned by Tencent and competes directly with Alibaba's Tmall.

Why JD Is A Top Pick

JD.com has invested in a tech-driven logistics infrastructure, including a fleet of delivery drones that fulfill product orders. That translates to faster and cheaper order delivery plus reliable order tracking. Add in a dedication to customer experience and it's not surprising the e-comm retailer has a customer base numbering in the hundreds of millions.

In the third quarter of 2023, JD.com reported a 1.7% revenue increase vs. the prior-year quarter. Income from operations grew 24%, notching a new profitability record. The company also produces some $8 billion in operating cash flow annually.

8. Harley-Davidson HOG

Stock price: $33.46
Analysts' price target: $45.25
LTM normalized, diluted EPS: $4.71
Dividend yield: 1.9%
P/E ratio: 6.9

Harley-Davidson Overview

Harley-Davidson makes and sells motorcycles in the U.S. and around the world. The company also provides wholesale and retail financing to dealers and consumers.

Why HOG Is A Top Pick

Harley-Davidson is the top U.S. motorcycle manufacturer and owns an estimated 21% market share. HOG has an extremely loyal client base and strong brand recognition.

Those qualities have helped the company manage through difficult macroeconomic conditions in recent years. Leadership's response to the tough times is its Hardwire Five-Year Strategic Plan. The plan targets higher profitability and low double-digit EPS growth through 2025. HOG is also investing in its LiveWire EV motorcycles and electric bikes to diversify its offering.

Third-quarter results at HOG showed lower sales and profits, but the company is still producing a lot of cash, repurchasing shares and easily funding its dividend. The disappointing performance is driving an 8% stock price decline year-to-date. This could be a buying opportunity for the investor who's willing to wait.

Undervalued Stock Investing Strategies

Investing in undervalued stock requires heavy research and analysis upfront, followed by patient monitoring. To position your value investing portfolio for success, lean on the five guidelines below.

1. Review the numbers

You can identify undervalued stocks by screening on valuation ratios. These include the P/E ratio, P/S ratio, P/B ratio and PEG ratio. It's also smart to include debt service coverage ratios and cash flow history in your analysis.

Review these metrics carefully relative to peers and the company's own historic values. This helps you quantify the opportunity and ensures your assets meet your technical requirements.

2. Understand the business and its key advantages

Business research helps you distinguish the best undervalued stocks from stocks that are cheap for a reason. You want to know how the company makes money, why it's successful, who the competitors are and how the company is differentiated from those competitors.

4. Diversify

Diversification is the practice of holding assets that respond differently to market conditions. Doing so helps you avoid the scenario where every investment you own drops equally on the same day.

You can diversify across asset classes, industries, company sizes and geographies. You can also diversify by practicing different investment styles at the same time, such as value investing and growth investing. Exposure to growth-oriented stocks provides upside in strong economies, while your value portfolio can be a steadying force in more uncertain times.

5. Be Patient

Value investing takes time. Often, companies are undervalued because they're going through difficult conditions. Months and years may pass before those conditions resolve. Be patient for those turnarounds, but also be ready to cut ties if conditions deteriorate.

Bottom Line

Undervalued stocks can deliver solid returns over time to the investor who's willing to wait. Research your options carefully and choose investments with notable competitive advantages alongside those conservative valuation metrics.

Understanding Undervalued Stocks:

Undervalued stocks are those trading below their intrinsic value. Investing in them can provide an attractive risk/reward profile. If the fundamentals of the company are strong, the risk is moderate, and gains can be realized as the stock's true value is recognized.

Reasons Stocks Can Be Undervalued:

Lack of Excitement:
- Investors may be drawn to exciting companies, leaving less attention for slow-growing, reliable stocks.
Temporary Negative Conditions:
- Overreactions to bad news can lead to an excessive dip in stock prices.

Methodology Used:

The methodology for selecting undervalued stocks involves considering:

Enduring Competitive Advantages:
- Companies with economic moats (e.g., intellectual property, network effect, scale).
Conservative PE Ratios Below 20:
- Indicates a conservative valuation.
Positive Analyst Views:
- Stocks viewed positively by analysts.

Recommended Undervalued Stocks for 2024:

Berkshire Hathaway (BRK.B):
- Diversified conglomerate with a focus on undervalued stocks.
Taiwan Semiconductor (TSM):
- Dominant chipmaker with strong market share and relationships.
Tencent Holdings (TCEHY):
- Chinese holding company with strong growth and conservative valuation.
Alibaba (BABA):
- Chinese e-commerce giant with a turnaround potential.
Wells Fargo (WFC):
- Recovering from regulatory issues, potential buying opportunity.
British American Tobacco PLC (BTI):
- Tobacco company with customer loyalty and steady growth.
JD.com (JD):
- Massive Chinese online retailer with a focus on tech-driven logistics.
Harley-Davidson (HOG):
- Top U.S. motorcycle manufacturer with a loyal client base.

Undervalued Stock Investing Strategies:

Review the Numbers:
- Use valuation ratios, debt service coverage, and cash flow history for analysis.
Understand the Business:
- Differentiate undervalued gems from stocks cheap for a reason.
Diversify:
- Spread investments across classes, industries, sizes, and geographies.
Be Patient:
- Value investing requires time; patience is key.

Undervalued stocks, when chosen wisely and patiently held, can offer solid returns. Research is crucial, and a combination of conservative valuation and competitive advantages enhances the investment potential.